Federalism In Action;

Mukti Rijal

Nepal’s federal constitution has been an outcome of the exhaustive and daunting political polemics that lasted for over a decade. The polemics had dominated the canvas of the Nepalese political horizon squandering meaningful opportunities for the democratic development of the country. The election held to the Constituent Assembly for the second time in 201 came out to be productive enough that had finally produced and enacted the federal republican constitution of Nepal on September 20, 2015. Accordingly, Nepal held elections for local, provincial and federal parliament which set an important milestone for the implementation of the federal constitution. More meaningful in this context has been the restructuring of the local governments that has slashed and rationalised their number down to seven hundred fifty-three from above three thousands. Though there have been some problems regarding the demarcation and delimitation of the local governments - rural municipalities (Gaupalikas) and Municipalities (Nagarpalikas) needing some corrections and adjustments, the restructuring strategy has contributed to increase the strategic role and capacity of the local level governments.

Novel ExperimentThe elections held and accomplished for local, provincial and federal level have opened fresh and important phase in the process of political, social and economic development of the country. The most critical and important phenomenon of the federal political development in Nepal has been the building of the democratic government at the provincial level which constitutes a novel experimentation in the political milieu of the country. The province level governments have started to work to signal new hope and optimism for the devolved political evolution in the country. However, many aspects, including institutional and physical infrastructures needed for the functioning of the provincial governments are yet to be provided and set in place. Some important laws and bylaws, needed to be enacted to enable the provincial government to operate and function, are yet to be drafted and enacted by both and federal and provincial governments. These new laws should not only reflect the norms and spirit of the federal constitution but also create a broader space and facilitative environment for the proper and effective implementation of the constitution. It is said that around two hundred new legislations should be enacted to give effect to the federal provisions of the new constitution. Some existing laws should be amended as well. Moreover, there is an utmost need to further clarify and specify the constitutional allocation of fiscal authorities and competencies among the three tiers of government. According to the design of the federal structure provided in the constitution and various legal instruments enacted by the federal government, assignment of responsibilities and competencies to raise and mobilise revenues has been allotted to different levels of government. However, fiscal experts point out the fact that over eighty per cent of tax resources are assigned to the federal government whereas competencies of the provincial government and local government has been marginal in terms of revenue assignment. As local and provincial governments are closer to the people, these subnational governments have better knowledge and understanding about the local, territorial needs and preferences of the people in their jurisdiction and maintain allocative efficiency as well. However, a chief minister of one of the provinces is reported to have remarked that the provincial governments have become like commander-in-chief without soldiers under him (Sena bina ko Senapati) expressing disgust over the poor infrastructural and institutional capacity of the subnational government. There is no gainsaying the fact that the newly constituted local government too, like the provincial ones have been institutionally and organisationally weak. Very important factor for the successful working of the federal polity is the negation and abandonment of the centralised mindset and power monopolising tendencies. Neither can we produce decentralised governance and appropriate development outcomes nor build democratic institutions to support implementation of federalism in Nepal if we continue with our legacy of centralised proclivity. Moreover, no matter the scope, scale and potential of the revenue assignment-related provisions in the constitution, there is also a need to enhance capacity of local governments and provinces to collect and mobilise the tax and non-tax resources as mandated in the constitution and law.While an increased revenue autonomy to subnational governments would be important, intergovernmental fiscal transfer can be an important tool for correcting the fiscal imbalances. In other words, sharing of revenue authority and distribution of available resources between center and subnational governments have been the important means of fiscal federalism. In this process, transferring authorities and funds should be so arranged and managed that both local and provincial governments would be able to discharge and execute their mandates and competencies as listed under the schedules of the constitution.

Critical issues In order to set a strong basis and mechanism for implementation fiscal federalism, natural resources and fiscal commission should be constituted soon. The commission should undertake an objective analysis of revenue autonomy and revenue sharing and develop formula for the transfer of resources to the subnational government. While designing formula for revenue sharing, we should take care of the lessons drawn from the national and international experiences as well. Though the government had conducted some assessment and set basis for transferring grants to the local government last year, these need to be properly refined and readapted to make them more objective and scientific. The key issues indeed are: what are the shortcomings of the current revenue sharing and grant allocation arrangement? Should the existing basis of revenue sharing and the indicators used in the grant formula be retained or modified? If so how? What type of expenditure autonomy can lead to the efficient and effective public service delivery? These are some of the critical and important issues which need to be carefully assessed to arrive at fiscally prudent and appropriate conclusion.